COMMISSIONER OF INCOME TAX Vs. SARASWATHI PUBLICITIES

JUDGEMENT

(1.) IN this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred :

(2.) THE assessee is a registered firm of five partners. THE previous years are the calendar years preceding the relevant assessment years. THE firm came into existence in January, 1960, and started carrying on the business of arranging exhibition of advertisement films of M/s. Lintas Ltd., originally done under a letter dated 15th January, 1960. By this letter, the rights for distribution and exhibition of films had been secured for the calendar years 1960 to 1962 for the areas, Madras and Rajasthan. Subsequently, there was a formal contract on 22nd April, 1961, which reduced the terms of the informal arrangement obtaining previously into a formal character. THE agreement was as between principal and principal and the rates at which the assessee was to be paid were stipulated in the agreement. Lintas was to provide the assessee with the necessary prints, etc. THE prints were to be of films in the Indian languages.

(3.) THE agreement with Lintas came to an end on 31st December, 1965. On 1st April, 1966, the assessee entered into a further agreement with Blaze modifying the terms of the agreement of 16th May, 1965, to some extent. In this agreement of 1st April, 1966, it was mentioned that by the earlier agreement of 1965, it had been agreed that neither party should interfere with the business of the other during the life of the agreement, i.e., till 31st March, 1975, and that the main business of the assessee was the business of exhibition of film shorts of Lintas in the agreed areas. It was also stated that Blaze was exhibiting film shorts of Lintas Ltd. in areas other than the agreed areas and was desirous of having the business of M/s. Hindustan Lever Ltd. and/or Lintas Ltd. in the agreed area also. Under the agreement of 16th May, 1965, the assessee had agreed not to represent or otherwise do business in film shorts and any sort of advertisement on the cinema screens for Hindustan Lever Ltd. or Lintas Ltd. in the agreed area. THE assessee had agreed also to Blaze "taking over and handling" the said business from April 1, 1966, and further agreed to refrain from carrying on the business with Hindustan Lever Ltd. or handle any film advertising business till the end of 1975. In consideration of these terms, Blaze agreed to pay the assessee (Saraswathi) a sum of Rs. 1,50,000. THE amount was payable by Blaze to Saraswathi irrespective of whether Blaze secured the said business from Hindustan Lever Ltd. or Lintas Ltd, or not. This amount of Rs. 1,50,000 was payable in instalments, three instalments of Rs. 25,000 each in 1968, and three instalments of Rs. 25,000 each in 1969. If there was a default in paying any one instalment the entire amount that remained due as on that date would become payable immediately to the assessee. In the event of Blaze failing to pay such amount, Saraswathi was entitled to claim from Blaze such amount jointly and severally from the parties constituting Blaze. THEre were other clauses in the agreement that in the event of Saraswathi or its allied concerns, approaching Hindustan Lever or Lintas for business, then an amount of Rs. 3,00,000 would have to be paid as liquidated damages by Saraswathi to Blaze.